Here is Why Employee Referrals are the Best Way to Hire

August 3, 2015

The more you research it, the more it becomes clear: almost always, the first step of any hiring process should be asking your existing employees if they know someone good for the role.

Why? Research shows getting a referral is a cheaper way to hire, a faster way to hire, generally produces a better hire and lowers the turnover rate at your company.

“(A great referral program) allows you to turn your entire workforce into recruiters,” said Meritage Talent Solutions Founder Kara Yarnot, who has made a career out of studying employee referrals. “When you only have so many recruiters and so many resources to reach out to candidates, it helps to have a great referral program to empower all of your employees to help in sourcing.”

Want to see the evidence? No problem. According to the research of Yarnot and others, here’s the case why for referrals, one benefit at a time.

1. A referred candidate is faster to hire than a traditional candidate

Intuitively, this makes perfect sense. Rather than having to craft a job posting, receive resumes and screen through them all, all you have to do is interview a referred candidate to hire them.

Yarnot has found, along with others, that there are significant time savings by hiring via referral. According to a study by JobVite, on average it takes 29 days to hire a referred candidate, compared to 39 days to hire a candidate through a job posting or 55 days to hire a candidate through a career site.

2. A referred candidate is cheaper to hire than a traditional candidate

For all the reasons mentioned above, a referred candidate is cheaper to hire than a traditional candidate. You don’t have to pay traditional recruiting costs to source them – an advertisement on a job board, agency fees, etc. – and, because they are faster to hire, it also means spending less on your internal labor costs.

Yarnot has found this to be true in her own research, even after factoring in a referral bonus, although the savings can vary greatly. For example, if a typical agency charges a fee of 20 percent of a hire’s first-year salary, that could be $20,000 for a single $100,000 hire. Even if you gave your employee a $2,000 referral bonus for successfully recommending a new hire, that’s an $18,000 savings, compared to hiring through an agency.

3. A referred hire will onboard faster than a traditional hire

A somewhat surprising benefit Yarnot has found in her own research. Why is this true?

“(The referred hire) feels like they have a friend who’s not their boss to turn to and ask questions as they onboard,” Yarnot said, referring to the person who referred the new hire. “So it helps to get them integrated into the culture much more quickly.”

4. A referred hire will stay at their job longer than a traditional hire

Obviously, the most important statistic people look at is quality-of-hire. While that’s not always easy to measure, Yarnot has found that a referred hire will stay at their job longer than a non-referred hire, a clear indication of higher quality.

Specifically, one study by JobVite found that 46 percent of referred hires stuck around for at least one year after they were hired, which was far above the 33 percent of people hired through career sites and 22 percent hired through job boards.

5. An employee who successfully referred a candidate will stay at their company longer than a traditional employee

Here’s an additional benefit you might not anticipate: if an employee at your company refers a candidate, and that candidate is hired,research shows they’ll be more likely to stick around your company longer.

“A successful referral makes an employee feel better about the company they work for,” Yarnot said. “What I’ve found is not only do they tend stay longer after the referral, but they are more engaged as well.”

Final thought

I don’t want to sound hyperbolic writing about employee referrals, but the facts are the facts: they are one of the best ways to hire. You wouldn’t want to hire exclusively through referrals, but, generally speaking, it’s the most cost-effective and effective methods to hiring a strong candidate.

Of course, the next step is building a great referral program, with those steps outlined here. And, beyond that, the real key to getting a lot of referrals is to create a truly great place to work, which your employees want to tell their friends about.